BPA trading room Q&A: September 18, 2015
Can you explain why, in a strong trend, the biggest bars are always in the opposite direction?
Video duration: 3min 34sec
Always keep both bulls and bears in mind
I do talk about it every now and then, but let’s talk about bar 75, and what took place on bar 75, Ok? I always think about it in terms of strong and weak bulls and bears. And so you get strong bears, strong bulls, weak bears, weak bulls.
Now think about it from the strong bear perspective. Are they shorting down here? Or did they short up here, and up here? There not interested in shorting down here, unless they’re really confident the strong bulls will not come in, right? So the strong bears are not going to be shorting down here. They see it’s a weak bear channel. It’s a channel, it’s a bear trend, but it’s weak–so they doubt that it’s going to be going very far. So if you’re a strong bear, you’re thinking “Okay. It’s not going to go very far, I got to take profits at some point. And what would be the best place for me to take profits? Well, if I get a gift bar – if I get a bar that’s just a gift, a big bar closing on its low, that’s where I want to take profits.” So the strong bears look at 75 and say “Wow! That’s a gift. I got to get out of here. The end of the day, the end of the week, we’re probably not going to go down very much. If 76 is also a big bear bar closing on its low, I’ll sell again. But right now I’m getting out on the 75 close, or the 76 close.” So the strong bears are getting out.
What are the weak bears doing? They’re saying “Oh my gosh. I did not short 75. It’s breaking out, it’s going to be a Sell The Close market. I’m going to sell.” So the weak bears are selling, and as soon as it starts to turn up, 76, 77, they decide “Ohh I’m in trouble, I got to buy back my shorts.” So you get the strong bears buying, you get the weak bears buying.
And the weak bulls, what are they doing? They keep buying and buying and buying. Buying below bars, scaling in, scaling in, buying, buying, buying… And then they see 75, and they say “Darn, it’s the end of the week, and it might be collapsing into the close — like it did a couple of weeks ago. And I could be just killed. I don’t think it’s going to happen, but I really cannot afford to lose anymore. I bought here, I added on here. I added on here. I bought below here. And now I got like a position that is four times greater than what I ever want to hold. And I’ve got a breakout 75, I just can’t take a chance. I’ve lost too much already. I just can’t take a chance. I don’t want to blow my account — I got to sell out of my longs.”
So the weak bulls are selling on the 75 close. They just see that and they say “I know it’s probably going to reverse, I can’t do it, I can’t do it. But I’ve lost too much, I can’t lose anymore.
And the strong bulls, they’re thinking like what I’m thinking – they are no more weak bulls left, they gave up on 75 — certainly by the close of 75. The strong bears see this as a weak bear channel, at the end of the week, end of the day—and a great profit opportunity. If it continues down they’ll sell again. But it’s probably not going to continue down, so the strong bears are buying. Weak bears are giving up on 76. The weak bulls are selling out. And that’s what is taking place on bars 75, 76.
Often leads to big reversal bar
So strong bulls buy. Strong bears buy. Weak bears sell and then buy [cover]. And weak bulls sell. And the result is strong bulls, strong bears buying – the market’s going up.
I talk about that a lot in the new videos, because the question comes up every now and then. So I try to make it clear.